The collapse of eCommerce startup Thrasio has sparked a conflict among its former private equity investors. Thrasio, an aggregator of Amazon (NASDAQ:AMZN) products, had once reached a valuation of $6 billion. However, financial difficulties arose following a decrease in online spending post-COVID-19 pandemic, leading to restructuring and eventually bankruptcy. This has led to a public dispute among the private equity firms involved, a rarity in the investment world.
Thrasio’s financial instability was not an isolated event; other firms in the aggregator sector, such as Benitago Group, also filed for bankruptcy, while Apollo sought buyers for its aggregator Perch. These events highlighted the broader challenges facing the aggregator business model. Reports from earlier this year noted that Thrasio was already grappling with financial issues and contemplating its future strategy before its eventual bankruptcy filing.
Ongoing Dispute Among Investors
Oaktree Capital Management has addressed a critical letter to private equity firms Silver Lake and Advent, lamenting their oversight of Thrasio. The letter, revealed by the Financial Times, underscores Oaktree’s disappointment in their erstwhile partners. Oaktree trusted Silver Lake and Advent to manage Thrasio prudently but found their expectations unmet.
“We believed that Advent and Silver Lake, experienced PE firms with whom we have partnered numerous times, would be steady hands at the helm and able to professionalize the business,” the trio wrote, adding that “this proved to be incorrect.”
Thrasio’s Financial Challenges
Thrasio declared bankruptcy earlier this year, emerging in June with a new leadership team and a renewed focus on its core business. Despite these changes, S&P Global Ratings issued a report describing Thrasio’s capital structure as “unsustainable,” cautioning about a potential default within a year due to tight liquidity.
“We didn’t have appropriate controls in place and instead relied on our alignment with the sponsors,” they continued. “This was clearly an error: we expected more judicious and cautious deployment of capital for growth, but our trust was misplaced.”
While Thrasio’s bankruptcy was part of a broader trend affecting the eCommerce aggregator industry, the public nature of the dispute among its backers is uncommon. The private equity firms often need to maintain good relationships as they invest together in various projects. Thrasio’s case has highlighted the vulnerabilities and risks associated with the business model of aggregating and scaling online brands.
Going forward, investors and companies in the eCommerce sector might need to re-evaluate their strategies and risk assessment frameworks. The recent events around Thrasio and other aggregators underline the importance of robust financial controls and prudent capital deployment. Stakeholders may also benefit from closely monitoring market conditions and adapting to swift changes to mitigate similar risks in the future.
